Transcription

1 The Directors Education Series Fair Lending Training for the Board of Directors Part I Presented by: Susan Costonis, C.R.C.M. Compliance Training & Consulting for Financial Institutions YOUR PRESENTER Susan Costonis is a compliance consultant and trainer. She has worked for large and small institutions in her 36 year career and has been a Certified Regulatory Compliance Manager since Susan has written numerous training manuals and successfully managed compliance programs and exams for institutions that ranged from a community bank to large multi state bank holding companies. She completed the ABA Graduate Compliance School, and the Graduate Banking School of the University of Colorado. She regularly presents to financial institution audiences in several states and translates complex regulations into simple concepts by using humor and real life examples. 2 1

2 The Director s Role Directors play an important role in the success of every financial institution by providing oversight and directing risk management. A recent ABA survey found that Fair Lending was the number one compliance concern given the more volatile regulatory environment that followed the mortgage meltdown. Fair Lending concerns have been heightened by the creation of the CFPB (Consumer Financial Protection Bureau) and expanded enforcement actions. This two part series will address key issues since Fair Lending violations can impede growth plans, impact profitability, and potentially damage the bank s reputation. 3 The Basics: Marketing, Underwriting, & Risk Management What do the regulators expect that the board understands about Fair Lending? What are the seven essential elements that will provide a strong foundation for an effective Fair Lending program? What are the risk factors for Fair Lending in underwriting? What do recent enforcement actions say about violations of Fair Lending laws during loan approval? 4 2

3 Measures for Compliance Directors are responsible for providing their Financial Institutions with a compliance management program that includes preventive, detective and corrective measures to insure compliance with banking laws and regulations. Preventive measures are those that help prevent violations from occurring, which can include: policies, procedures, internal controls, and training. 5 What is a Compliance Management System? An effective compliance management system has three interdependent elements: Board and management oversight Compliance program Compliance audit 6 3

8 15 FAIR LENDING TYPES OF DISCRIMINATION General Rule Prohibiting Discrimination (Section ) Reg B prohibits financial institutions from discriminating against an applicant on a prohibited basis regarding any aspect of a credit transaction What would discourage a reasonable person? If a minority applicant is kept waiting for a long time while non minority applicants get immediate attention it would discourage that minority applicant. If an employee says directly, or indirectly, that the applicant probably won t qualify it would be considered discouraging. 16 8

9 Types of Discrimination "Overt evidence of discrimination," when a lender blatantly discriminates on a prohibited basis; Evidence of "disparate treatment," when a lender treats applicants differently based on one of the prohibited factors; and Evidence of "disparate impact," when a lender applies a practice uniformly to all applicants but the practice has a discriminatory effect on a prohibited basis and is not justified by business necessity. 17 Self Assessments for Fair Lending Is there a law that says you MUST conduct a fair lending risk assessment? While the answer is technically NO, even small Financial Institutions are advised to consider conducting a fair lending risk assessment to create a good foundation for internal controls. All these activities should be appropriate for the size and complexity of the Financial Institution. When conducting a risk assessment, at a minimum you should review: Written policies and procedures Board and management reports Training records 18 9

10 Practical Tips for Conducting a Risk Assesment At a minimum you should review: Written policies and procedures Board and management reports Training records Fair Lending Risk Factors Compliance Program 1. Underwriting 2. Pricing 3. Marketing / Advertising 4. Steering 5. Redlining 19 Fair Lending Risk Assessment Summary Chart Low Moderate High Some discretion is allowed in the underwriting and pricing process. A certain amount of subjective criteria is allowed. Loan policy is very strict and little discretion from a pricing sheet or underwriting criteria is allowed. There is no evidence of gaps in geographic or income distribution for lending There have been no fair lending complaints made to the institution or their regulator There are some gaps in geographic or income distribution for lending but they are explained by reasonable exceptions There have been a few fair lending complaints made to the institution or their regulator. The complaints were resolved on a reasonable basis The lending policy allows a high level of discretion and there is no formal loan documentation process for underwriting and pricing. There are significant gaps in geographic or income distribution for lending without reasonable explanation. There have been many fair lending complaints made to the institution and their regulator

12 CFPB and Consumer Complaints The CFPB submitted a fifth semi annual report to Congress on May 28, Here are a few of the comments about the complaint project that were found in the 178 page report. Highlights CFPB has an Office of Consumer Response, they have received over 332,300 consumer complaints on credit reporting, debt collection, money transfers, bank accounts and services, credit cards, mortgages, vehicle loans, payday loans and student loans as of March 31, In November 2013 the CFPB added debt collection complaints to the range of products Complaint process is covered under Consumer Concerns and explained on pages of the report 23 Complaints by Product 24 12

13 The Four D S at the CFPB KEY TAKE AWAYS Speech, 10/24/14 They are problems we see much too often: deceptive marketing, debt traps, dead end markets, and discrimination Deceptive marketing project Know before you Owe Debt traps payday lending Dead ends 30 million Americans one in seven consumers came out of the financial crisis with one or more debts in collection; credit reporting Discrimination access to credit, complaint database more than 460,000 complaints 25 CFPB and Department of Justice VS. GE Capital June 19, 2014 CFPB Orders GE Capital to Pay $225 Million in Consumer Relief for Deceptive and Discriminatory Credit Card Practices Marketed the product as free of charge Failed to disclose consumers ineligibility Failed to disclose that consumers were making a purchase Marketed products as a limited time offer Discriminatory Credit Practices offers, GE Capital did not extend these offers to any customer who indicated that they preferred to communicate in Spanish or had a mailing address in Puerto Rico, even if the customer met the promotion s qualifications

14 HUD and Maternity Leave Violation of the Fair Housing Act FirstBank Mortgage Partners has been fined $35,000 by the U.S. Department of Housing and Urban Development to settle allegations that the lender violated the Fair Housing Act by denying a mortgage loan to a couple because one applicant was on maternity leave. This instance is at least the third maternity related fine levied by HUD in the last several months. In July, HUD and the Department of Justice settled claims against Bank of America, PNC Mortgage, Cornerstone Mortgage, and MGIC, among other companies, alleging that the companies engaged in maternity discrimination. Earlier in July, mortgage lender Greenlight Financial Services was fined $48,000 to settle allegations that it violated the Fair Housing Act when it denied or delayed mortgage loans to women because they were on maternity leave. 27 HUD and Disability Violation of the Fair Housing Act August 13, 2014 Freedom Mortgage, a national residential mortgage lender based in Mt. Laurel, New Jersey, has been ordered to pay $104,000 by the U.S. Department of Housing and Urban Development to settle claims that the lender discriminated against loan applicants with disabilities. In one case, a loan applicant provided medical documentation of his disability, a Department of Labor Work Capacity Evaluation form, and a benefits statement showing regular disability payments since Nonetheless, Freedom Mortgage allegedly continued to request proof that the income would continue for at least three years. As part of the settlement with HUD, Freedom Mortgage will establish a system to provide relief to the discrimination victims, in the form of payments of $1,000, $2,000, or $5,000 in damages

15 HUD and Redlining Violations October 2, 2014 HUD announced today that it has negotiated a Conciliation Agreement with Illinois based Midland States Bancorp, resolving allegations that the bank avoided doing business in predominantly African American and Hispanic neighborhoods in St. Louis, Missouri and northern Illinois. The settlement with Midland States Bancorp is the result of a housing discrimination complaint that was filed by Metropolitan St. Louis Equal Housing and Opportunity Council (EHOC), a HUD Fair Housing Initiatives Program agency. EHOC s complaint alleged that the bank delineated its service area in a discriminatory manner that excluded areas of high minority concentration, a practice known as redlining. Agreed to originate $8 million in mortgage loans in majority minority neighborhoods over the next three years, and establish a $550,000 Subsidy Fund; originate $3 million in home repair loans in majorityminority census tracts, and establish a $400,000 Subsidy Fund 29 Final Thoughts & Discussion Items Discuss the effectiveness of the bank s current Fair Lending program to detect risks in discriminatory treatment. Does our bank have any particular risks based on new products, vendor relationships, acquisition of other institutions, or expanded retail footprint? How effective is our risk assessment process for Fair Lending? Do we have adequate staff? Has training been effective? 30 15

THE ATTORNEY GENERAL S 2006 ANNUAL REPORT TO CONGRESS PURSUANT TO THE EQUAL CREDIT OPPORTUNITY ACT AMENDMENTS OF 1976 SUBMITTED BY WAN J. KIM ASSISTANT ATTORNEY GENERAL MARCH 13, 2007 This report is submitted

FAIR HOUSING LEGAL SUPPORT CENTER A CONSUMER GUIDE TO FAIR LENDING AND HOME OWNERSHIP PRESERVATION A CONSUMER GUIDE TO FAIR LENDING AND HOME OWNERSHIP PRESERVATION OVERVIEW This guide explains your right

Guide to Fair Mortgage Lending and Home Preservation Fair Housing Legal Support Center & Clinic Guide to Fair Mortgage Lending and Home Preservation What does this guide cover? What is Fair Lending? What

General Principles and Introduction Supervised entities within the scope of CFPB s supervision and enforcement authority include both depository institutions and non-depository consumer financial services

Vendor Management: Who the CFPB is Watching and Who They Are Expecting You to be Watching John Barnes 713.210.7441 jbarnes@bakerdonelson.com Jessica Hinkie 713.210.7405 jhinkie@bakerdonelson.com Kat Statman

Board of Governors of the Federal Reserve System Federal Deposit Insurance Corporation Unfair or Deceptive Acts or Practices by State-Chartered Banks March 11, 2004 Purpose The Board of Governors of the

March 31, 2005 FREQUENTLY ASKED QUESTIONS ABOUT THE NEW HMDA DATA General Background 1. What is the Home Mortgage Disclosure Act (HMDA)? HMDA, enacted by Congress in 1975, requires most mortgage lenders

GLOSSARY OF TERMS Ability to Repay (ATR) The Ability to Repay rule protects consumers from taking on mortgages that exceed their financial means, by mandating the documentation / proof of income and assets.

An Introduction to the Community Reinvestment Act for Tribal Communities Gloria Reynolds Community Affairs Specialist FDIC August 8 th 2013 What is the CRA? CRA stands for The Community Reinvestment Act

NCRC Analysis of Bank Account Complaints by ZIP Code 2013 Josh Silver Archana Pradhan Vice President of Research & Policy National Community Reinvestment Coalition Senior Research Analyst National Community

TRUSTED INTELLIGENCE 1 POINT OF VIEW CFPB Know Before You Owe 2 Background The Consumer Financial Protection Bureau (CFPB) established new disclosure rules that become effective on mortgage applications

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NEW YORK UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) v. ) Civil Action No. ) ERIE INSURANCE COMPANY ) OF NEW YORK; ERIE INSURANCE ) COMPANY;

CFPB and Lenders A presentation on the Consumer Financial Protection Bureau and its impact on the lending industry What is the Consumer Financial Protection Bureau (CFPB)? Independent agency of the United

To preserve competition among mortgage lenders, provide relief from unnecessary regulatory requirements on responsible community mortgage lenders, and for other purposes. introduced the following bill;

31 August 2010 Part II of A NERA Insights Series Consumer Protection and Regulatory Changes in the Dodd-Frank Bill By Dr. Ethan Cohen-Cole Summary On 21 July 2010, President Obama signed into law the Dodd-Frank

Quarterly Conversations: Live from First State Bank and Trust Caruthersville, Missouri August 19, 2015 1 Options to Join the Conversation Webinar and audio Click on the link: https://www.webcaster4.com/webcast/page/584/8667

Importance of the Consumer Financial Protection Bureau The aftermath of the financial crisis affected millions of Americans. The U.S. economy was devastated as companies crumbled, homeowners lost their

The CFPB and Medical Collections: Unknown Territory in the Face of Sweeping Regulatory Change Agenda What is the CFPB? Brief chronology of the CFPB CFPB investigations and examinations; the cost of non-compliance

1 of 5 7/6/2007 11:19 AM IN THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA UNITED STATES OF AMERICA, Plaintiff, v. LONG BEACH MORTGAGE COMPANY, Defendant. COMPLAINT FOR COMPENSATORY

Mark W Olson: Home Mortgage Disclosure Act Testimony by Mr Mark W Olson, Member of the Board of Governors of the US Federal Reserve System, before the Subcommittee on Financial Institutions and Consumer

Consumer Financial Protection Bureau Two Years In and Just Beginning the Baby Steps By Thomas J. King, Standing Chapter 13 Trustee for the Eastern District of Wisconsin The Consumer Financial Protection

Independence Title Are you buying or selling a home after October 3, 2015? Nationwide the mortgage lending industry (creditors) will face a big change beginning October 3rd of this year. Here are the 3

By Meg Sczyrba, CRCM, and Phillip R. Rick Freer, Jr., CRCM A Field Guide to Taming It has been nearly 10 years since the unfair, deceptive or abusive acts or practices (UDAAP) beast was first hatched and

Office of Financial Regulation Alisa Goldberg Chief, Bureau of Registration Division of Securities 1 History The Office of Financial Regulation (OFR) was created in 203 by section 20.121(3), Florida Statutes,

COMMENTS OF THE TAX PROBLEM RESOLUTION SERVICES COALITION TO THE BUREAU OF CONSUMER FINANCIAL PROTECTION IN CONSIDERATION OF DOCKET NUMBER CFPB-HQ-2011-2 FOR DEFINING LARGER PARTICIPANTS IN CERTAIN CONSUMER

April 3, 2006 FREQUENTLY ASKED QUESTIONS ABOUT THE NEW HMDA DATA General Background 1. What is the Home Mortgage Disclosure Act (HMDA)? HMDA, enacted by Congress in 1975, requires most mortgage lenders

Characteristics of Home Mortgage Lending to Racial or Ethnic Groups in Iowa Liesl Eathington Dave Swenson Regional Capacity Analysis Program ReCAP Department of Economics, Iowa State University September

Commonly Known as Payday Lending These examination procedures apply to the short-term, small-dollar credit market, commonly known as payday lending. The procedures are comprised of modules covering a payday

FEDERAL HOUSING FINANCE AGENCY OFFICE OF INSPECTOR GENERAL FHFA Should Develop and Implement a Risk-Based Plan to Monitor the Enterprises Oversight of Their Counterparties Compliance with Contractual Requirements